Independents become affiliated by aggravation

Being an independent or rural wireless operator in the shadow of national carrier giants is not a business for the faint of heart. Average revenue per user and minutes of usage are sometimes a challenge to maintain, and the expense of network buildouts and 3G network upgrades can be difficult for a small company to absorb.

That's why local network affiliate partnership programs like the one Sprint has operated since June 1998 have been a boon to some. The affiliate agreements gave each affiliate company the exclusive rights (though the extent of exclusivity varied from one agreement to another) to sell Sprint products and services to customers in their local markets and to carry the Sprint roaming traffic that traversed the highways and byways of their coverage areas. In return, Sprint realized an operational savings in reaching customers who would have been costly for the company to reach on its own, as well as a share of the roaming revenue from each affiliate carrier.

However, wireless industry consolidation is shifting fortunes and testing the bond of alliances throughout the industry. At the national level, Sprint announced in early 2005 that it was merging with Nextel Communications, a deal that closed last month. However, because Nextel and its own affiliate, Nextel Partners, already operate in some of the same markets as Sprint's 11 local affiliate, several of Sprint's partners filed lawsuits to try to block the merger. Even on Aug. 8, after Sprint and Nextel already had indicated their merger was due to close four days later, Sprint affiliate Alamosa PCS became the latest carrier to file such an injunction, alleging that the merger breaches the affiliate agreement that its AirGate PCS subsidiary has with Sprint.

As of press time, no court date had been set for the Alamosa/AirGate suit. Steven Richardson, chief operating officer for Alamosa PCS, said during the company's second-quarter earnings call last month, “We did this in order to protect our rights under our contractual agreement — unfortunately, we haven't had a beneficial outcome to our discussions with Sprint about our concerns,” he said, adding, “but we have no cause to believe we won't eventually reach an agreement.”

Alamosa officials were hesitant to talk specifically about how Sprint Nextel would affect AirGate PCS or how the smaller company would respond competitively in its AirGate markets, mostly in southeastern states. Privately, several analysts suggested that Sprint and Nextel were too consumed with merger-closing duties in recent weeks to adequately address the remaining affiliate lawsuits, but that with the merger closed, negotiations should ramp up again.

So far, the affiliates' legal moves have met with mixed results. The suit filed by US Unwired became moot when Sprint acquired that company for $1.6 billion. Not long after that deal, iPCS settled out of court with Sprint. But, a handful of suits, including Alamosa's, remain active.

While a mega-merger has thrust their affiliate agreements into controversy, the smaller companies have not been immune to consolidation themselves. iPCS merged with fellow Sprint affiliate Horizon PCS earlier this year, and Alamosa PCS acquired AirGate PCS last winter in an attempt to broaden its coverage and branch into new markets. Alamosa now claims just more than 1 million subscribers in all its territories and has initiated a 3G network upgrades in its AirGate markets. Alamosa also showed strong second-quarter ARPU of $55, about $6 of which came from data services.

FIGHT FOR INDEPENDENTS

• February '03

  iPCS and Horizon PCS separately file for bankruptcy; both sue Sprint, alleging terms of affiliate agreement helped push them into Chapter 11.

• April '05

  Ubiquitel, Enterprise Wireless separately sue Sprint, alleging that proposed merger with Nextel violates affiliate agreement.

• May

  iPCS sues Sprint over Nextel deal.

• June

  U.S. Unwired sues Sprint over Nextel merger.

• July

  Gulf Coast Wireless sues Sprint over Nextel merger; Sprint settles suits with iPCS and Ubiquitel; Sprint acquires U.S. Unwired, effectively settling that suit.

• August

  Alamosa PCS sues Sprint over Nextel merger; Sprint/Nextel merger closes.